Usually we connect RSP's with an immediate tax deduction, but the long-term
benefits of accumulating assets in a tax-sheltered plan may be just as
great as the short-term deduction.

Your annual RSP contribution is based on your previous year's earned income
minus a pension adjustment for any benefits you accumulated in a pension
plan or deferred profit sharing plan from your employer. Your RSP deduction
limit is listed on the Revenue Canada Notice of Assessment you received
following your last year's tax return.

When you contribute to an RSP you can claim an equivalent deduction from
your income before calculating your tax payable.This immediate deduction
is very worthwhile, especially if you use the tax saved to make an RSP
contribution for next year or pay off after-tax debt such as your mortgage.

However, RSP investments also accumulate within the plan tax-free. The
longer your money stays sheltered from the taxman, the greater the earning
power of your investment. The most powerful benefit of an RSP is this
tax-free accumulation.

Compare taxed and tax-free investment returns. Investors having a marginal
tax rate of 40% who invest $1000 per year for the next 30 years at an
average 10 per cent annual return, and pay tax as the profits are earned,
will accumulate $57,435.

If the same investor contributes $1000 per year to an RSP for the next
30 years, earns an average 10 per cent return, then pays all taxes owing,
$108,696 will be left. The investment has almost doubled when the income
was tax-sheltered in an RSP.

The real power of an RSP is this compounding effect over a long period
of time. Without the tax in the example above, it's like adding 4% to
your average annual rate of return, certainly nothing to sneeze at. With
a high rate of return, RSP contributions early in your life can go a long
way toward providing for your retirement.

At any age, RSP contributions are one of the very best investment strategies.
You always get the tax deduction, and you always have your investment
compounding tax-free.

Another good strategy is making "spousal" RSP contributions. The higher-income
spouse contributes to the lower-income spouse's RSP. The higher-income
spouse receives the RSP tax deduction. However, when it's time to draw
the RSP contributions out, they go to the lower-income spouse at a lower
tax rate. This is one of the few allowable ways to split income and is
highly recommended.

Mutual funds specify objectives in their prospectus to investors. Some
aim for growth, some for steady income, some for preservation of capital.
Talk to your investment adviser about your investment objectives and capacity
for risk. Your adviser can help you find the RSP investment fund that
is right for you.

But remember, start today. The sooner you contribute, the sooner you will
lower today's taxes and begin accumulating your investment tax-free.